Last week, China’s chief healthcare regulator, the National Health and Family Planning Commission (NHFPC), published a significant revision to its earlier rules on donations to healthcare entities. This category of entities includes the nation’s network of state-run hospitals and clinics where about 90 percent of citizens get their healthcare.
The revised rule, titled Administrative Measures on Accepting Donations for Public Welfare by Healthcare Entities (for Trial Implementation) (the “New Donation Measures,” see original Chinese here and Covington’s English translation here), replaced the Administrative Measures on the Acceptance of Donations and Sponsorships (“2007 Measures”), which was promulgated in 2007.
The New Donation Measures, which take effect immediately, technically apply only to the receipt of donations by healthcare entities. In practice, however, the New Donation Measures are detailed guidelines for entities that wish to make charitable contributions to a variety of entities, such as hospitals, societies, foundations, and other social welfare organizations (collectively “healthcare entities”).
The New Donation Measures are significantly more detailed — including more restrictions — than the 2007 Measures.
Significantly, the New Donation Measures:
- apply to both foreign and domestic donors and include additional types of healthcare-related donees, such as public welfare societies, foundations, and other charitable organizations
- provide more detail regarding the circumstances under which donations are both allowed and prohibited
- create a new institutional review mechanism prior to accepting a donation
- provide more detailed and stringent restrictions on making and accepting donations, including among other items, requiring that donors donate via bank transfers and certify that the contributions are from legitimate sources, and
- increase transparency by requiring healthcare entities to make information about donations publicly available and subject those arrangements to potential audits.
The New Donation Measures provide support for a position that legitimate donations that follow these rules will not be deemed to be improper under Chinese law. The New Donation Measures do not, however, squarely address whether life science companies can continue to sponsor individual healthcare professionals to attend academic events, either directly or indirectly via event organizers or healthcare entities employing such professionals.
The requirement for healthcare entities to publicize donations will likely bring more scrutiny of donations by the public and potentially by enforcement agencies in China and elsewhere. To mitigate these risks, life science companies should ensure that their processes for reviewing and approving donations to healthcare entities in China are robust.
A detailed analysis of the New Donation Measures, including a table comparing the provisions in the 2007 and 2015 rules in Chinese and English, can be obtained from the authors.
Eric Carlson, a contributing editor of the FCPA Blog, is a Shanghai-based partner at Covington & Burling LLP. Anna Zhao is an associate in Covington’s Washington office. Both specialize in anti-corruption compliance and internal investigations, with a particular focus on China and other regions of Asia. Eric Carlson speaks fluent Mandarin and Cantonese and can be contacted here. Anna Zhao speaks native Mandarin and fluent English and can be contacted here.